Guosheng Securities: Capital investment by Internet companies in the field of AI has brought significant benefits to multiple industry chains.

Guosheng Securities Communication Team released a research report stating that IDC construction, computing power enhancement, and AI technology research and development are expected to become the key investment directions for internet giants in the field of AI: data center construction, related hardware and software areas involving computing power enhancement, and application research and development. The research report summary is as follows: Review and Current Situation: Investment Trends in AI Significantly Increasing In the accelerated transformation of domestic computing power, the investment perspective is leading, and the capital expenditure of internet giants is clearly leaning towards AI trends. Major domestic internet companies (such as ByteDance, Baidu, Tencent, Alibaba) have two significant marginal changes in capital expenditures: one is an increase in total amount, with major companies accelerating their investment in AI computing power expansion, AI chip procurement, and data center upgrades; the other is structural optimization, shifting from traditional internet businesses to AI-related areas, including a more pronounced tilt towards AI model training platforms and inference infrastructure: ByteDance: In recent years, ByteDance's business has rapidly expanded, with increasing investment in technology and infrastructure. By 2024, ByteDance's capital expenditure will reach 80 billion RMB, far surpassing traditional internet giants. The large CAPEX is primarily to meet the rapid development needs of AI applications such as Douyin and to autonomously build large-scale data center clusters. Tencent: In 2023, Tencent's capital expenditure maintained steady growth, mainly focused on traditional business areas such as internet services. In 2024, Tencent's capital expenditure strategy has changed significantly, achieving a capital expenditure of 17.1 billion RMB in Q3 of 2024, a year-on-year increase of 114%, mainly due to the company's increased investment in AI. Alibaba: Alibaba has been investing heavily in cloud computing, big data, and other areas since 2022 and earlier, laying the foundation for the subsequent development of AI business. In Q3 of 2024, Alibaba's capital expenditure was 17.5 billion RMB, a year-on-year increase of 239.4%, mainly revolving around investments in computing power. Baidu: Over the past few years, Baidu has continuously invested a large amount of money in the research and application of AI technology, achieving significant results in areas such as autonomous driving and intelligent speech. Outlook: Domestic Capex Trends and Beneficiary Segments We believe that IDC construction, computing power enhancement, and AI technology research and development are expected to become the key investment directions for internet giants in the field of AI: Data center construction: Data is the foundation of AI development, and internet companies need a large amount of data to train and optimize AI models. Therefore, building large-scale, efficient data centers is expected to be one of the key investment directions for internet companies, including investments in data center location selection, construction, equipment procurement, etc. Related hardware and software areas involving computing power enhancement: The development of AI technology has led to an exponential growth in demand for computing power. Enhancing computing power levels involves multiple investments in hardware and software, including purchasing high-performance servers, GPUs, optical modules, switches, etc., as well as researching and applying new computing power enhancement technologies such as quantum computing, edge computing, etc. Application research and development: Continuous innovation in applications is key to driving industry development. Internet companies need to invest a large amount of money in the research and development of AI technology, including algorithm research, model training, application development, etc. The capital investment of internet companies in the field of AI has brought significant benefits to multiple segments of the industry chain. Optical module suppliers benefit from the growth in data center communication demand, and domestic optical module manufacturers are expected to receive more orders and market share; switch suppliers will also benefit from the expansion of data center scale and performance requirements; data center hosting companies achieve rapid development through the growth of room leasing and operations business; cooling manufacturers benefit from the increased demand for liquid cooling equipment; backup power supply suppliers gain more market opportunities as data center reliability requirements increase; server assembly and power supply suppliers also experience greater orders and profit margins due to the growth of AI business demand for servers. In summary, we are optimistic about the computing power sector in the long term. At the current time, we recommend focusing on the progress of domestic computing power and related industry chains. We particularly recommend companies such as Zhongji Innolight, Eoptolink Technology Inc., Suzhou TFC Optical Communication in the optical communication sector, and companies like Cambricon in the domestic computing power sector, domestic optical communication companies such as Accelink Technologies, Wuxi Taclink Optoelectronics Technology, Huagong Tech, switch manufacturers like Ruijie Networks, Shenzhen Phoenix Telecom Technology (OEM), cooling manufacturers like Shenzhen Envicool Technology, Guangzhou Goaland Energy Conservation Tech, third-party IDC companies like Range Intelligent Computing Technology Group, Beijing Sinnet Technology, Guangdong Aofei Data Technology, key communication component manufacturers like ZTE Corporation, Shengketa Communication, etc. Recommendations to focus on: Computing power- Optical communication: Zhongji Innolight, Eoptolink Technology Inc., Suzhou TFC Optical Communication, T&S Communications, Optowide Technologies, Advanced Fiber Resources, Accelink Technologies, Wuxi Taclink Optoelectronics Technology, Linktel TechTechnologies, Huagong Tech, Yuanjie Semiconductor Technology, Cig Shanghai, Dongguan Mentech Optical & Magnetic. Copper links: Shenzhen Woer Heat-shrinkable Material, Tongling Jingda Special Magnet Wire. Computing power equipment: ZTE Corporation, Unisplendour Corporation, Ruijie Networks, Shengke Communications, Shenzhen Phoenix Telecom Technology, Foxconn Industrial Internet, Wus Printed Circuit, Cambricon, Hygon Information Technology. Liquid cooling: Shenzhen Envicool Technology, Guangdong Shenling Environmental Systems, Guangzhou Goaland Energy Conservation Tech. Edge computing platform: MeiG Smart Technology, Fibocom Wireless Inc., Quectel Wireless Solutions. Satellite communication: China Satellite Communications, China Spacesat, Genew Technologies, Guangzhou Haige Communications Group Incorporated.